Three British soldiers were cleared yesterday of killing a 15-year-old Iraqi boy who drowned after allegedly being forced into a canal to "teach him a lesson" for suspected looting.

After a five-week trial, Colour Sergeant Carle Selman, 39, of the Coldstream Guards, Guardsman Joseph McCleary, 24, of the Irish Guards, and Guardsman Martin McGing, 22, also of the Irish Guards, were found not guilty of manslaughter by a court martial panel sitting in Colchester, Essex.

The men were part of the crew of a Warrior armoured vehicle and were on the last day of a tour of duty in Iraq when the alleged incident took place.

Family members wept and cheered in court as the verdicts were read out and afterwards said they had been through three years of "hell". Last month the judge ruled that a fourth soldier, Lance Corporal James Cooke, 22, of the Irish Guards, who was the driver of the Warrior vehicle, should be found not guilty.

The prosecution had alleged that Ahmed Jabar Karheem, who could not swim, was ordered into the Shatt al-Basra canal in May 2003 after being caught looting. There was only one eyewitness, another suspected looter named Aiad Salim Hanon, who claimed to have been beaten by the soldiers and admitted that he had hoped for compensation from the British authorities for reporting the incident.

At the time, British troops were struggling to curtail an "epidemic" of looting in Basra after the defeat of Saddam Hussein, the court martial heard.

After the verdicts, Phil Shiner, a human rights lawyer who represents the victim's father, said: "There are huge structural problems with the military system of investigating itself." He accused the Royal Military police of a number of failings.

"It lacks independence. It lacks rigour. It lacks a strong rationale to get to the bottom of this type of incident," he said.

The case was the latest in a string of trials which have delved into alleged British abuses during the occupation of Iraq.

In November the trial of seven paratroopers accused of murdering an Iraqi teenager collapsed after the judge criticised the military investigation and accused some Iraqi witnesses of being seekers of "blood money".

During the Guards' trial, a senior army officer said a lack of planning had turned the occupation of Iraq into a shambles. The problem of looting spiralled out of control because the military police were undermanned. Lieutenant Colonel Nicholas Mercer, the Army's senior legal officer for the invasion, said: "There was a total failure to plan for the occupation. There was only enough time to prepare for war, never mind the occupation."

Military witnesses said looters were "wetted" in rivers and canals in an attempt to make them feel uncomfortable. This was considered "minimum force" in the circumstances.

Col Mercer admitted there were insufficient troops to carry out the duties of an occupying power. "In Basra, with a population of roughly half a million, there were only 64 military policemen and they had other duties to perform as well as dealing with criminals," he said.

"In reality the British were massively undermanned and that was impossible. We did the best we could with the time available."

The three soldiers welcomed yesterday's verdicts. Guardsman McGing's barrister, Jerry Hayes, said: "He's absolutely delighted at the result and so are his family and the regiment and every single British soldier serving in the theatre of war who could have been at risk if there was a conviction."

Fadi Daoud, solicitor for Guardsman McGing, said it had been "an ill-conceived case which should never have been prosecuted".

Chris Wright, solicitor for Sgt Selman, said in a statement: "[He] is naturally grateful that the anxiety he and his family have suffered is over. He welcomes the wide-ranging support offered from across the Household Division, but above all he is relieved his innocence in this matter is confirmed."

Guardsman McCleary, speaking after the verdicts, said: "I want to thank everyone for their help and support. Justice has been served and I would like to thank everyone."

The MoD said the soldiers would be able to resume their careers with the support of the army and their regiments.